Becker's Hospital Review

30 CFO / FINANCE CHS, Quorum say investors weren't duped into buying stock at inflated prices By Ayla Ellison F ranklin, Tenn.-based Community Health Systems and Brentwood, Tenn.-based Quorum Health urged a federal judge not to grant class certification in a share- holder lawsuit alleging Quorum's stock was trading at an inflated price after its spinoff from CHS. Here are four things to know: 1. The lawsuit, filed in 2016 and amended in April 2017, alleges investors were tricked into buying Quorum stock at inflated prices because CHS, Quorum and several compa- ny executives failed to disclose that Quo- rum's goodwill and long-lived assets were impaired prior to the spinoff. The plaintiffs, who seek to represent a class of Quorum shareholders, allege the companies' failure to disclose the impairment charges violated federal securities law. 2. CHS announced plans in August 2015 to spin off 38 hospitals and a management company to form Quorum. Plaintiffs argue CHS and Quorum misled the market into be- lieving Quorum's goodwill was not impaired prior to the spinoff. However, the companies argue that was not the case. 3. CHS and Quorum claim their financial challenges were well publicized prior to the spinoff. They argue the "sustained decrease" in CHS' stock price and the decline in over- all financial performance of both companies was public information prior to the spinoff. They further allege analyst reports published prior to the spinoff confirmed the market was aware that the Quorum hospitals were less profitable than the average CHS hospital. 4. CHS and Quorum argue the plaintiffs' mo- tion for class certification should be denied because the spinoff did not affect Quorum's stock price. "A fundamental premise of the fraud-on-the-market theory is that the al- leged misrepresentation influenced the market price of the security at issue," states the companies' opposition to the motion for class certification. "The fraud-on-the market theory is unavailing here because there is overwhelming evidence that the alleged mis- representations did not have price impact." n Oklahoma hospital, Aetna accuse management company of billing fraud By Morgan Haefner S hattuck, Okla.-based Newman Memorial Hospital and Aetna filed lawsuits against People's Choice Hospital, an Oak Brook, Ill.-based management company, alleging People's Choice committed billing fraud, according to News OK. Newman Memorial Hospital tapped People's Choice, which aims to turn around financially struggling hospitals, for financial assistance after the rural hospital nearly closed in May 2016. In its complaint, the hospital claimed People's Choice told Newman Memorial's administration it could keep the hospital afloat if it followed a plan to bring in and bill more lucrative lab tests. In its lawsuit, Aetna accused People's Choice of sending samples from blood and urine tests to other labs and falsely claiming New- man Memorial processed the tests. Aetna claims it lost $21.6 mil- lion on more than 10,000 bills for lab tests over 16 months, ac- cording to News OK. The insurer's lawsuit states it paid about $2,250 for some tests it thought were performed at the rural hos- pital, compared to the $120 it would have paid at a larger lab. People's Choice denies the allegations. Newman Memorial and People's Choice settled the hospital's lawsuit out of court. Their arrangement was undisclosed. Aetna has not pursued any repayment from Newman, alleging People's Choice and its partners collected most of the lab revenue, according to News OK. n Cleveland Clinic's operating income plunges 80% in Q2 By Ayla Ellison C leveland Clinic ended the sec- ond quarter of 2018 with oper- ating income of $25.1 million, down 80 percent from $130.5 million in the same period a year earlier, accord- ing to unaudited financial documents released in August. Cleveland Clinic's revenues increased to $2.21 billion in the second quarter of 2018, up 2 percent from $2.16 billion in the sec- ond quarter of 2017. However, higher ex- penses offset the system's revenue gains. Cleveland Clinic said operating expenses climbed 7.3 percent year over year. During the second quarter of this year, Cleveland Clinic saw notable increases in expenses related to salaries, wages and benefits, as well as pharmaceutical and supply costs. To address the growth in expenses, Cleveland Clinic said it is developing and implementing cost management and containment plans as part of an ongoing initiative launched in 2013. Cleveland Clinic commissioned a Care Affordability Task Force in 2013 to ana- lyze the system's cost structure and iden- tify cost and efficiency opportunities. Since its inception in 2014, the task force has helped Cleveland Clinic roll out ini- tiatives that resulted in $1 billion of im- provements in the system's cost structure. Aer factoring in nonoperating gains, which dropped 73 percent year over year, Cleveland Clinic recorded net income of $80.7 million in the second quarter of 2018, compared to $303.3 million in the same period of the year prior. n

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